When I joined the Mays BusinessSchool, I had a vision of what I wanted to be in the financial world. Over the years, Itook many different courses, listened to many different ideas but none of themclicked. I came in seeing myself working somewhere in the Equity ResearchBusiness after graduation and later down the years, starting an mutual or hedgefund. Over the last few years I have been activelytrading in the equity market. One thing I always had issues with was the pricetarget issued for a stock by a number of analysts. Whether it be Zacks,MarketWatch, The Street or Vetr, the price targets never remained consistent.
An example of this would be SunEdison. When SunEdison (SUNE) was trading at $5per share, analysts had a price target of $12 set for the stock. Given thatcompany had $11 billion of debt, deteriorating sales, and a balance sheet whichwas a complete mess, a price target of $12 seemed unreasonable. Now that samestock is trading at $0.
37 and now the analysts have a new price target of $3.75which is still unreasonable since the company is about to file for bankruptcywhich will leave its common stock worthless. There are many other exampleswhere analysts have done such a thing. The key takeaway here is, for an averageinvestor who looked at the price targets for this stock and bought it at $5thinking it was going to $12 lost more than 90% of his investment. A smartinvestor who looked at the balance sheet would have avoided the stock butconsidering there are more uninformed investors than informed investors, suchdisastrous analyzing from the big firms causes the average investor to lose.Another thing that happens is stock manipulation from the same research firms.
If these firms own a share in a company, they upgrade it its rating, push thestock up and then they close their positions letting, causing the average harmagain. This is why we see stocks shoot up on an upgrade and then drop back downto the same range as they were before. The perfect example of this isBlackberry (BBRY). A stock which was rated a “Strong Buy” when it wastrading at $8, shot up to $9.50 on the upgrade, pulled back to $7 and then therating was changed to a “SELL” by the same firm.
The point here isthe average investor was played around by the big firm again. So in order totackle this problem I’m working on a startup which will serve the purpose ofanalyzing stocks that are being manipulated. This will be an Equity ResearchBusiness similar to The Street or Zacks but instead of harming the investor, itwill serve the sole purpose of helping the average investor and protecting themfrom being manipulated. Soon after I have anestablished business and a stable source of income, the second goal will comeinto play.
The hedge fund community only serves to the super rich investorsbecause they are the ones who can make the big investments. One idea that iscompletely ignored by Hedge Fund managers is that “little drops of water makethe mighty ocean.” Basing it off theresearch of my own investment firm, I plan to start a Hedge fund or Investmentfund to serve the daily investor. If the capital requirement is high which itwill be, our hedge won’t be afraid to take on more than the usual number ofinvestors. The purpose of the fund will be to give the same rights and chancesthe people of the upper class have to the daily working class.
Capital will becollected from people who have no idea of investing in the market and placedinto a dividend paying fund. Using the research of our equity firm, the fundwill make investments in the equity market using hedging techniques to minimizerisk. The risk level will be kept at a minimum at all times since the people wewill be dealing with rely on that capital a lot more than someone who has anendless amount of capital. If all works out as planned, the idea of investingin the market will excel and overall benefit the economy as a whole.As we have seen over thelast 30 years or so, rich people keep getting richer and poor people keepgetting crushed into the ground. This is the idea behind the fund and theequity research business.
In a legal manner, if we are able to inject the syrupof the people of the upper class into the lower class giving every person anequal chance of making it to the top, this country will become a lot morecompetitive and the talk of equality we hear about all the time will become areality.